第 1 页 共 8页Case Study: Dairy Cow Farming and Dairy Processing Project

Dairy Cow Farming and Dairy Processing Project

To Improve Employment and Elevate Poverty in Poorer Regions

UN Global Compact Case Study

China. Junyao Group

2001/10/30

The trend of Unified Economy does not bode well in poorer regions of many
developing countries. In fact, over-centralised economy tends to exasperate the
already widening gaps between the rich and the indigence, leading to contradiction
and turbulence in our global community. Some regions still have more than their fair
share of unemployment and poverty. Civilisation and progress of humanity are now
facing these serious challenges and sharing such great concern is a Chinese private –
owned enterprises like the Junyao Group.

1 Company Information

Following the open-door reform policy in China, Junyao Group started its business in
1991 and has grown into a nationwide conglomerate, with chartering aeroplanes and
dairy processing at its core; other investments includes hotel and property
developments. Junyao Group is now one of the top 100 private-owned enterprises in
China.

The aviation service capacity of the Group has over 300 flights per week and more
than 50 routes nationwide. Working closely with all major airlines in China, the
Group involves in chartering aeroplanes for passenger, cargo and travel related
services within a national network. The rapid growth of its aviation services
contribute greatly in the development of all other businesses within the Group.

Junyao Dairy, as one of the core businesses of the Group, has been growing rapidly
since 1996. Junyao Milk is now a famous brand amongst the top 10 best- selling milk
products in China. Junyao Milk has built up its sales network with 1,000 area
wholesalers for its national distribution. Equipped with advanced technology in
production lines, Junyao Milk has developed six different series, including more than
forty varieties. With 3 production bases and other sub-contracted production plants, its

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annual production capacity has reached 180,000 tonnes. The Dairy Company is
preparing for a public listing in Shanghai Stock Exchange Market ready by the end of
2001.

However, improvement in regional wealth does not necessarily impulse the prosperity
of the whole nation. Hence, a Poverty Relief Project was introduced to eliminate the
poverty and alleviate the unemployment situation in Yichang County, Hubei Province.

2 Yi chang Information

Yichang County in Hubei Province is a comparatively under-developed county in the

middle-west region of China. Lying in the city of Yichang between Gezhou Dam
Reservoir and the Three Gorges Reservoir, it is 420 metres above sea level. The year
round temperature is between 16.2 C to 17.4 C. The amount of rainfall is around
1,000 mm, with sunshine 1,669.3 hours per year. The frost-free season is 250 days per
year. Other than Yangtze River, there are four river systems in the County. In Yichang
County there are 32.73 hectares of cultivated field, of which 14.14 hectares are paddy
field while18.59 hectares are dry farmland. The total production of grain is 245,000
tonnes last year, with 2.55 million Mu (170,085 hectares) for pasture cultivation.

More information is as follows:

Number of Town 20

Number of Village 519

Residential units 4,035

Number of Households 179,400 (151,200 out of them are village households)

Total Population 573,100 (488,100of them are agricultural residents

and the rest 85,000)

Average Net Income (p.a.) 2,717 RMB

3 Project Background
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Yichang County has a unique agricultural structure, in which crops cultivation and
livestock farming account for 60 % and 30% respectively. The main crops are sweet
corn and rice while livestock farming are mainly pigs and chickens.

The major source of income of the residents comes from agriculture. The
characteristics of its farming is small-scaled, labour intensive and low value added,
thus limiting the income of individuals. (Appendix: Table 1 – 3)

The average income of a farmer is 2,717 RMB (US$327) but nearly 50% of the
population has their net income of less than 1,000 RMB (US$120). This group of
people are living under the poverty line.

With the ‘Three Gorges Project’ in Changjiang (Yangtze) River, the Chinese
Government is facing a big challenge to resettle the residents and ensure minimum
disruption of their livelihood. In order to fully utilise natural resources of this area
and help residents to increase their earnings, Junyao Group decided to introduce the
‘Poverty Relief Project’

4 Project Scope/ Framework:

In 2000, Junyao Group introduced and implemented the Project. The mission of the
Project is to help resettlement of local residents and improve their living standard. The
Project targets to achieve the following goals within 3 years.

 8,000 household of dairy farming;

 5 sample dairy farms with minimum 500 heads of dairy cows each;

 30,000 Mu (2,000 hectares) of pasture for forage grass;

 2,000 Mu (133 hectares) of Fish Farm;

 Two dairy processing plants with annual production capacity of total 140,000
tonnes;

 Raw milk collection stations and cold chain transportation;

 A Technological Service Centre

 A Genetic Engineering Research Institute

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The total investment of the Project involves 350 million RMB (36 million US dollars)
and is divided into three phrases, executed at the same time.

Phase I - Construction of a dairy plant (annual production capacity of 80,000 tonnes);

- Cultivate 10,000 dairy cows in three villages and towns;

- Two sample dairy farms with 500 heads of dairy cows each;

- Small-scale cultivation of pasture and fish farms.

Phase II - Construction of a dairy plant (60,000 tonnes of dairy products per year)

- Encourage dairy cow cultivation in more towns and villages so as to reach

the target of total 20,000 dairy cows

- Target to have 20,000 Mu (1,334 hectares) of pasture cultivation

Phase III - Establish a Genetic Engineering Research Institute and target to have a

total of 30,000 dairy cows and 30,000 Mu (2,000 hectares) of pasture

cultivation.

Up till now, the Group has invested 150 million RMB (18 million US dollars) and
achieved some encouraging results in Phase I establishments. The dairy processing
capacity reached 60,000 tonnes and there are 3,000 heads of dairy cow with two
sample dairy farms. Moreover, the Technological Service Centre, raw milk collection
stations and cold chain transportation system are in operation.

As a whole, and from the macro point of view, the planning and design of this Project
are in tandem with the agriculture and rural economic development strategies of the
Chinese Government. It reinforces the competitive power of agriculture products in
the international market and up keep the milk processing level of China. The Project
also helps to reform state-owned enterprises and eradicate poverty for 20,000
families, creating 2,000 new employment opportunities. Moreover, it helps
resettlement of residents in the Three Gorges Reservoir Area and secures the
livelihoods of 50,000 farmers; ensuring the success of the Three Gorges constructions
on Changjiang River. As a result, the Project receives great support from the
provincial and Central Government. On 18 July 2001, Premier Zhu Rongji and Vice

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Premier WU Bangguo highly commanded the Project and presented a reward to

President Wang as a recognition.

5 Project Structure and Implementation:

5.1 Organisation and Leadership

Junyao Group Dairy Company Limited, a subsidiary of Junyao Group, is responsible

for the over-all planning, design and implementation of the Project. It adopts the
model of ‘Company + Production Base + Farmers’ and eventually formed a new
supply chain, where dairy cow farming, new product development and marketing all
work together.

5.2 Major Principles

In order to ensure the successful implementation of the Project, Junyao Group is

following the major principles listed below:

 Aim at improving the livelihood of the residents in the reservoir areas;

 Link the resident resettlement issues with the Project;

 Help to solve the unemployment problems;

 Create a new agricultural structure by designing a new production value chain.

 Develop organic food production to satisfy the needs of customers nation-

wide;

 Emphasis on improving advanced technology and waste processing.

Key to successful implementation of the project is to create a win-win situation for all
concerned. From the economic point of view, Junyao Group aims to sustain a stable
and cost effective supply of raw milk to maximize its profits. From the social
responsibility point of view, the Project aims to increase income of the farmers and
create more employment opportunities. The optimum size of 3-5 dairy cows per unit
will create 8,000 new diary farmers and help resettling of 20,000 farmers with
suitable employment opportunities.

With the aim to increase employment opportunities, it was decided to employ more
manual workers for packaging, labelling and blow moulding of bottles in the dairy

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plant. With the 500 new jobs thus created, the level of employment has reached 1,200
in the plant.

5.3 Technology Applications and Human Resources Allocation

Junyao Group employed a team of highly skilled technicians and experienced

management professionals to establish a Technology Services Centre. Also employed
are experts in R & D and support systems for the cultivation process, including fresh
milk collection, cow cattle breeding, disease control, seeds selection and fertilizers
application etc. Extra supports are also made available to the farmers by the Group:

(i) With support from the local government and commercial banks, Junyao Group
guarantees capital loans to farmers for purchasing stock.;

(ii) Contract to purchase all raw milk from dairy farmers

(iii) Co-operate with local government to arrange insurance for the dairy cows

5.4 Environmental Friendly Policies

Junyao Group invested more than 10 million RMB (1.2 Million US dollars) in
designing an environment friendly infrastructure:

 Use high quality coal to reduce sulphur content to below 0.9%

 Recycle cooling water and steam and improve sewage system by effective
effluent treatment.

 Construct sound proof structures to reduce noise pollution and vibration of the
machines

The standard of the above arrangement are:

(i) Air SO2 20.27t/a Dust/Smoke 4.6t/a

(ii) Water COD 4.1t/a
(iii) Solid Waste 535t/a Disposal 0

6 Conclusion

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The Project has greatly improved the average income of many households and raised
substantial living standards.

6.1 Income Analysis

Excluding the cost of cow breeding, the cost of feeding a dairy cow is approximately

7,207.50 RMB. The break down is as follows:

Feedingstuffs (Fine feed 1.52 RMB x 5kg x 365 days 5,400.00 RMB
plus green corps 0.48 RMB x 15kg x 365 days)
Pest control 100.00 RMB
Labour cost 720.00 RMB
Depreciation of milk cow and fixed asset (@10% p.a.) 987.50 RMB
Sub Total: 7,207.50 RMB

The average yield of dairy cow is 5,000 kg p.a., cost is approximately 1.44RMB per
kg, and selling price 2.00 RMB per kg. Based on the scenario that every household
has 5 milk cows, net annual income is 5,000 x (2.00-1.44) x 5 =14,000.00 RMB. In
other words, the Project has dramatically increased the income of farmers. Income of
supporting pasture forage farmers increase three folds with an annual income of 7,500
RMB.

6.2 Social Impact Analysis

The fruition of the Project, with its most direct advantage of reducing and eradicating
poverty for 20,000 households, resettlement of 50,000 farmers and creating thousands
of new employment opportunities, will surely help to alleviate conflicts and stabilise
our society.

Based on the Global Compact and its nine principles, Junyao Group would like to
share with all participants our business practices and to cooperate with United Nations
(UN), ILO and NGO partners for poverty eradication and development of
environmentally friendly technologies.

Appendix

Table 1 Annual Net Income of Farmer in 2000 ( RMB)

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Average Over 5,000- 3,000- 2,000- 1,000- Below

2,717
Income 10,000 10,000 5,000 3,000 2,000 1,000
Accumulated
3% 5% 12% 15% 25% 40% 100%
Percentage

Table 2 Farmers Household Expenditure in 2000

Health
Items Total Food Clothing Care/ Education Housing Others
Medical

Expenditure 1666.32 293.64 76.26 115.45 6.98 69.99 1104

Table 3Cash Income of Framers

Transportation
Livestock and other
Items Total Agriculture Foresting Fishing Processing
farming commercial
activities
Amount
1397.47 559 27.9 2935 42 69.9 405

Proportion 100% 40% 2% 21% 3% 5% 29%

Source: Yichang Annual Report 2000

Remarks: ”Others expenditure ”includes non-consumption expenditure and production expenditure.

CONTACT:
Wang Junyao
Email: junyaogroup@8848.net